Edited version of your written advice

Authorisation Number: 1051324911774

Date of advice: 09 January 2018

Ruling

Subject: Temporary resident income from a foreign trust

Questions and answers

1. Are you a temporary resident of Country A for the purposes of Subdivision 768-R ITAA 1997?

Yes

2. Will the proposed trust distributions have a foreign source?

Yes

3. Are the proposed trust distributions Country A assessable income?

No

4. Is there a capital gain from the proposed trust distributions?

No

5. Do the transfer trust provisions apply to the proposed trust distributions?

No

6. Do the controlled foreign company provisions apply to the proposed trust distributions?

No

This ruling applies for the following periods

Years ended:

XX June 20XX

XX June 20XX

XX June 20XX

The scheme commences on:

XX July 20XX

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You are a Country B citizen.

You moved to Country A in 20XX.

You travel on a Country B passport.

You are in Country A as a temporary resident and will remain a temporary resident.

You are not an Country A resident within the meaning of the Social Security Act 1991.

You do not have a spouse who is an Country A resident within the meaning of the Social Security Act 1991.

You are a beneficiary of three non-resident trusts.

You are not a trustee of any of the trusts.

The non-resident trusts intend to realise a gain from the sale of assets.

You will receive distributions of income from the non-resident trusts as a beneficiary.

None of the assets of the non-resident trusts are taxable Country A Property.

No distributions of income made to you as beneficiary of the trusts are derived from an Country A source.

Further facts of the non-resident trusts are listed below:

1. Trust (1)

The facts relating to this Trust are as follows:

The Trust was established in 198X by the settlor a relative of the Taxpayer.

The settlor was a resident of an overseas nation to protect the family assets from the political, social and economic instability in the overseas nation the settlor formed the Trust.

Since the death of the settlor, the beneficiaries now live outside of the overseas nation and it is considered the Trust is no longer required.

The Trustee intends to extinguish the Trust and transfer all the assets to the Taxpayer.

The Trust has a foreign Corporate Trustee.

The Taxpayer has never been a Trustee of the Trust, and has no ownership interest in, nor control over, the Corporate Trustees.

The Corporate Trustee is an independent professional trustee that has absolute and uncontrolled power and discretion vested in them.

All decision-making occurs outside of Country A.

The Trust is a non-resident Trust as defined in Division 6 of the ITAA 1936.

Beneficiaries specified under the trust deed are, the Taxpayer their spouse, widow and descendants.

Assets of The Trust are loans and cash at bank all the bank accounts are held outside of Country A.

2. Trust (2)

The facts relating to this Trust are as follows:

The Trust was established in 20XX by the settlor a relative of the Taxpayer.

The settlor was a resident of an overseas nation to protect the family assets from the political, social and economic instability in the overseas nation the settlor formed the Trust.

Since the death of the settlor, the beneficiaries now live outside of the overseas nation and it is considered the Trust is no longer required.

The Trustee of the Trust intends to make a specie distribution of real property located in Country C to the taxpayer.

The Trust has a foreign Corporate Trustee.

The Taxpayer has never been a Trustee of the Trust, and has no ownership interest in, nor control over, the Corporate Trustees.

The Corporate Trustee is an independent professional trustee that has absolute and uncontrolled power and discretion vested in them.

All decision-making occurs outside of Country A.

The Trust is a non-resident Trust as defined in Division 6 of the ITAA 1936.

Beneficiaries specified under the trust deed are, the Taxpayer their spouse, widow and descendants.

Assets of The Trust are shares in a foreign resident company that owns properties in a foreign country, all the trust bank accounts are held outside of Country A.

It is intended one of the properties will be transferred to the Trust and distributed to the Taxpayer.

3. Trust (3)

The facts relating to this Trust are as follows:

The Trust was established in 20XX.

The Trust has a foreign Corporate Trustee.

The Taxpayer resigned as joint Trustee of the Trust in 20XX.

The Trustee of the Trust intends to either make an in specie distribution of property or loan the Taxpayer funds.

The Corporate Trustee is an independent professional trustee that has absolute and uncontrolled power and discretion vested in them.

All decision-making occurs outside of Country A.

The Trust is a non-resident Trust as defined in Division 6 of the ITAA 1936.

The Taxpayer is the primary beneficiary under the Trust.

Assets of the Trust are an investment portfolio and investment property located outside of Country A.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subdivision 768-R-10

Income Tax Assessment Act 1997 Subdivision 768-910

Income Tax Assessment Act 1997 Subdivision 768-915

Income Tax Assessment Act 1997 Subdivision 768-960

Income Tax Assessment Act 1997 Subdivision 768-970

Income Tax Assessment Act 1997 Division 855-10

Income Tax Assessment Act 1997 Division 855-15

Income Tax Assessment Act 1997 Subdivision 995-1

Income Tax Assessment Act 1936 Subsection 6(1)

Income Tax Assessment Act 1936 Part X

Income Tax Assessment Act 1936 Section 99B

Income Tax Assessment Act 1936 Subdivision D Division 6AAA

Income Tax Assessment Act 1936 Section 102AAZD

Income Tax Assessment Act 1936 Subsection 102AAZD (1)

Taxation Administration Act 1953 Division 359 Schedule 1

Taxation Administration Act 1953 Subsection 357-115 (1)

Reasons for Decision

These reasons for decision accompany the Notice of private ruling.

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

1. Temporary residency

A ‘temporary resident’ is defined in subsection 995-1(1) of the ITAA 1997 as an individual if they:

● Hold a temporary visa granted under the Migration Act 1958 and;

● Neither the individual nor their spouse is an Australian resident within the meaning the Social Security Act 1991.

However an individual will not be a temporary resident if they have previously been a resident, but not a temporary resident, after 1 July 2006.

The facts provided demonstrate you are a temporary resident for the purpose of subsection 995-1(1) of the ITAA 1997.

Rules relating to temporary residents can be found at subdivision 768-R of the ITAA 1997. Generally foreign income derived by temporary residents is non-assessable non-exempt income and capital gains and losses are also disregarded for CGT purposes. There are some exceptions relating to employment income, capital gains on shares and employee share schemes.

2. Source

There is no specific definition of the term ‘source’ in the ITAA 1997. There are, however, a limited number of statutory source rules for particular types of income found in the ITAA 1936.

Where none of these statutory rules apply, we need to determine the source of income according to principles of common law. When relevant the applicable tax treaty may be applied, as many treaties contain source rules.

Royalties, dividends, natural resource income, certain insurance premiums and income earned from the carriage of goods in Australian are all transactions that have statutory rules that apply to them.

In determining source according to common law principals the fundamental element is the facts of the particular circumstances. This principle was established by Isaacs J in Nathan v. FC of T (1928) 25 CLR 183 189:

The Legislature in using the word ‘source’ meant, not a legal concept, but something which a practical man would regard as a real source of income, The ascertainment of the actual source of a given income is a practical, hard matter of fact.

In each case, the facts must be analysed and the relevant factors leading to the derivation of the income needs to be identified. In some cases, it will not be possible to identify a single source for an item of income. If that is the case, the income will be apportioned between those multiple sources.

Income source is attributable to the facts of each income item. In this case no Country A sourced income has been considered as the facts provided demonstrate it is unnecessary.

3. Foreign source trust distributions assessable income

Under section 768-910 of the ITAA 1997 both ordinary and statutory income derived by a temporary resident from a non-Australian source is non-assessable, non-exempt income. However, ordinary and statutory income derived by a temporary resident from an Country A source is not, non-assessable non-exempt income.

As a temporary resident income you derived that has a non- Country A source is classified as non-assessable non-exempt income and is excluded from Country A taxable income and ignored when working out available losses.

4. Other considerations

It was not necessary to consider the following issues as they do not apply to temporary residents or non-resident trusts.

● Capital Gains Tax section 768-915 provides capital gains and losses are to be disregarded if;

● The tax payer is a temporary resident or;

● The tax payer was a foreign resident when the CGT event occurred.

● Controlled foreign company provisions section 768-960 provides temporary resident taxpayers are not taken to be an attributable taxpayers for the purposes of the controlled foreign company’s rules.

● Transferor trust provisions section 768-970 modification of rules for accruals system of taxation of certain non-resident trust estates. Provides that at any time when you are a temporary resident, you are taken not to be a resident for the purposes of section 102AAZD of the ITAA 1936.

Other references (ATO view)

Taxation Ruling TR2012/18 Income tax: does a Country B citizen who was present in Country A as the holder of a temporary visa granted under section 32 of the Migration Act 1958 (a Special Category Visa) that ceased to be in effect when they departed Country A, still hold a temporary visa for the purposes of paragraph (a) in the ‘temporary resident’ definition in subsection 995-1(1) of the Income Tax Assessment Act 1997?

Nathan v. FC of T (1918) 25 CLR 183.

FCT v. Spotless Services & Anor 95 ATC 4775.

Rhodesian Metals Ltd (Liquidator) v. Taxes Commr (Southern Rhodesia) (1940) 3 All ER 422 (PC).

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).